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Gov’t assigns extra bonds

Publishing Date : 18 June, 2019

Author : ALFRED MASOKOLA

Government continues to issue more bonds and allot more to existing ones listed on the local market. Last week Friday Botswana Stock Exchange Limited (BSEL) notified the market of new changes following new insertions and changes on BBIS Constituent Bonds in the 2018 second quarter.


Ministry of Finance & Economic Development through Bank of Botswana (BOB) recently issued an additional total of P477 million to its existing Bonds, BW007, BW014 and BW015. A communiqué from BSE reveals that at the 31st May 2019 Government Bonds and Treasury Bill Auction, the three Bonds all of which are GovI, BBIFixed and BBI constituent bonds were re-opened and allotted additional issuances.


The BW007 bond was allotted P150.00 million, increasing its total nominal amount in issue to P2, 124 million while BW014 received additional issuance of P227.00 million, raising its total nominal amount in issue to P1, 158.00 million. In addition BW015 was reopened and additional P100 million was allotted. These additional issuances have increased the total nominal amount in issue on the BBIS by P477.00 million to P 14,193.17 million. The Constituents series currently represents 40 constituent bonds in total 33 of which corporate bonds with 24 fixed being rate bonds. The remaining 7 are government bonds.


Botswana Stock Exchange trades its Index Series (BBIS) under a series of 4 bond indices being Composite Bond Index (BBI), Government Bond Index (GovI), Corporate Bond Index (CorpI) and Composite Fixed Rate Bond Index (BBIFixed). The 1st March 2019 auction marked the first quarter of this year’s bond issuances with this 31st May insertions marking second quarter issuance.


Zooming into 2018 Bond performance the BSE Bond Index Series (BBIS) appreciated by 3.2% whereas the GovI and CorpI registered returns of 3.5% and 3.3% respectively. The BBIFixed returned 2.6% since its introduction in April 2018. Inflation averaged of 3.2% in 2018 mirrored that listed bonds provided purchasing power protection, save for the fixed rate bonds. Inflation in the year predominantly remained within the objective range of 3%-6% whereas interest rates were held constant throughout the year.


The value of bonds traded increased over four times from P535.6 Million in 2017 to P2, 222.7 Million in 2018. Government bonds continued to dominate liquidity of the market accounting for 97.9% of total turnover. The BSE registered a record number of new bond listings as 10 new bonds came on board compared to 8 in 2017. “This cushioned the impact of the 4 bond delisting in the year 2018.


Even though Government bonds accounted for the majority of trading activity corporate bonds dominated in terms of the quantity of bonds listed, a phenomenon that in most African markets is the reverse. At sector level, the profile of the bond market at the end of 2018 was such that Government bonds accounted for 63.8% of market capitalization, Quasi-Government (1.3%), Parastatals (7.9%), Corporate (25.3%) and Supranational (1.7%).


For 2019, trading activity increased significantly during 2019 Quarter 1 compared to the same period in 2018. The value of bonds traded over the period was P251.9 Million in comparison to P27.4 Million traded over the same period in 2018.  At the 1 March 2019 Government Bonds and Treasury Bill auction, the Bank of Botswana (BoB), on behalf of the Government offered additional tranches of the BW013 allotting P137.00 Million ,  increasing its total nominal amount in issue to P1,076.00 Million as well as BW014 allotting P335.00 Million hiking up its total nominal amount in issue to P931.00 Million.


On the back of Government bonds tap issuances and new issuances, the market capitalization of listed bonds increased to P15.4 Billion compared to P14.7 Billion as at the same period in 2018. On quarterly basis Government issues long dated bonds with a view to support the local capital market, observers in the financial services industry also hold the same sentiments. Experts and service providers in the insurance industry say regular bond issuances sparks confidence and in particular boosts the annuity book across investment & insurance market.


This was also reiterated by Catherine Lesetedi Chief Executive Officer of leading financial services, insurance and investment group Botswana Insurance Holdings Limited (BIHL) late last year when delivering her company’s financial results. For 2018 H1 she highlighted that BIHL delivered satisfactory figures on the annuity front because of continued commitment to support the market by Government “we are pleased that during the first six months we realized an improvement in annuity inflows, we were able to manage the annuity risk bolstered by government quarterly bond issuing” She said.


Lesetedi further  explained that the annuity book was an extremely risky segment to manage noting that for BHIL , the breakthrough would also be attributed to well structured risk management framework handled by a team of actuaries that manage the risk and meets on a monthly basis , “It would be remise of me not to mention the fact that managing the annuity book requires long dated assets and we are quite pleased as BIHL that we have seen government come to the party and issue on a quarterly basis long dated bonds which sparks confidence in the market and boost annuity inflows”


Government bond which is sometime referred to as sovereign bond is a bond issued by a national government unusually through the treasury or central bank, generally with a promise to pay periodic interest payments and to repay the face value on the maturity date. The bonds are usually denominated in the country's own currency; the terms on which a government can sell bonds depend on how creditworthy the market considers it to be. International credit rating agencies would provide ratings for the bonds, but market participants would then make up their own minds about a particular bond. In the case of Botswana, several years ago Government decided to assist in the growth of a stable and vibrant capital market in the country.


Government through Bank of Botswana resolved to issue debt instrument in the form of bonds and treasury bills, issued on quarterly basis. Botswana Stock Exchange Limited has played a pivotal role in boosting the annuity market and the capital market at large by calling for government to issue more bonds. BSE argued that the limited availability of listed government bonds negatively impact the demand of debt instruments while also compromising the liquidity of the debt market.


In mid 2017, Thapelo Tsheole, the Chief Executive Officer of Botswana Stock Exchange now a demutualized limited company remarked that lack of adequate government bonds as well as the wide gaps between their maturity dates was posing the danger of negatively hitting the pricing of corporate bonds. “We need to have more government bonds issued to maintain a robust risk free curve and the viability of the existing BSE bond indices.


These wide gaps in the yield curve negatively impact the pricing of assets such as corporate bonds that ordinarily reference risk free assets and this brings distortions in pricing and compromises the liquidity and the appetite for debt instruments,” said the BSE Chief quoted in July 2017.


Catherine Lesetedi noted that government decision to participate more and coming up with a reviewed framework that speaks to a specified and defined interval of bond issuing was commendable “We are quite pleased that at the last auction Government came to the market with a new bond BW 0015 which is a 25 year tenure bond, and this is very helpful for anyone who is in the market for annuities to manage their liabilities,” she said.

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